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Bhargava closing insurance biz; agents, clients surprised, upset

Manoj Bhargava is the first one to admit he wasn't cut out to be in the insurance industry.

"I am not known for my patience," said the CEO of 5-Hour Energy about his decision to phase out his Farmington Hills-based PrimeOne Insurance Co.

While the 4-year-old property and casualty insurance company is honoring current policies, PrimeOne sent letters to agents starting May 2 that it will not write new policies.

"We have stuff all the time that we start up and we end," said Bhargava, chairman of PrimeOne and founder and CEO of Living Essentials LLC, which makes and distributes 5-Hour Energy. "This project isn't one that is working, so we are shutting it down. It is a business decision."

But Bhargava's decision isn't sitting well with insurance agents, many of whom took a chance with the insurer because of Bhargava's business reputation.

"I am very disappointed. We gave them a significant amount of trust and worked with them to sell a lot of policies, and to pull the plug without any explanation is pretty disheartening," said George Gjokaj, owner and CEO of Primary Insurance Agency Group LLC in Sterling Heights.

Gjokaj, who has sold about 100 PrimeOne policies, said he doesn't know what to tell his clients.

"I am probably going to bring in my clients to discuss it with them. I have been in the business for 20 years and have never seen anything like this before," said Gjokaj, noting that he and other agents received little advance notice that PrimeOne was going out of business.

PrimeOne lost $2.27 million last year on net premiums written of $5.7 million, according to a financial report filed with the Michigan Department of Insurance and Financial Services. During the first three months of 2014, the insurer lost another $1.14 million on net written premiums of $1.3 million, DIFS said.

Bhargava said PrimeOne — an insurer that focused on bars, taverns, strip clubs and restaurants — required more capital investments to meet operating costs than he wanted to spend.

During the fourth quarter of 2013, Bhargava's companies contributed $4 million in capital to help offset operating losses, said A.M. Best Co., an Oldwick, N.J.-based credit rating agency.

"We didn't want to invest (in PrimeOne any more)," Bhargava said. "We decided we have too many other projects (that promise better returns on investment). If I were to invest $5 million or $10 million for the long haul, it makes no sense. This is a small company that would keep looking for money."

In March, Bhargava announced a $100 million investment in Oakland Energy and Water Ventures LLC, a private equity company. He launched Stage 2 Innovations LLC, another private equity firm, in 2011.

Caleb Buhs, DIFS' public information officer, said the department has been notified PrimeOne is winding down operations.

"We are regulating them as we always have and asked them for a plan of action to understand how they are (conducting the business run-off) and to make sure all their obligations are fulfilled," he said.

In a May 22 statement, A.M. Best said PrimeOne faces challenges as it phases out its business.

PrimeOne management must be careful "concerning the current book of business and whether the loss reserves associated with existing claims, and incurred but not reported claims, develop favorably or unfavorably," A.M. Best said.

Bhargava declined to discuss potential employee layoffs or the process he is going through to close PrimeOne. He confirmed that Dan Gibson, the company's CEO since 2012, left several weeks ago.

Doug Young, an insurance attorney with Detroit-based Wilson Young PLC, said PrimeOne aggressively tried to increase market share by paying agents up to a 20 percent commission to sell its policies. Average commissions range between 12 to 15 percent, he said.

"This company was short-lived and aggressive," said Young, who also represents the Michigan Association of Insurance Agents.

"It appeared to ... underprice insurance coverage as a way to grow premium volume and gain market share. It also was gaining a reputation for aggressively denying claims," said Young, who represents a PrimeOne policyholder in a lawsuit that alleges the company has failed to pay a business interruption claim for more than a year.

Gjokaj said PrimeOne offered the lowest premiums of any property casualty insurer in the hospitality industry.

"I have a client with a PrimeOne policy I am trying to renew with another insurer," he said. "He owns a restaurant in Detroit and paid a premium of $4,700. The closest price I have found so far is $7,770. This will be a real problem for many of my clients."